Hiding behind your parent

In Fasano v Reckitt Benckiser Group (1) and Reckitt Benckiser Health (2) the Employment Appeal Tribunal (“EAT”) somewhat reluctantly made a finding that had the consequence of leaving the claimant without a remedy, despite a discriminatory act occurring. The conclusion reached was that a discriminatory decision made by a parent company, and which impacted on an employee of a subsidiary, could not be attributed to the subsidiary – the actual employer.

The employee in question was employed by Reckitt Benckiser Health Ltd (“RBH”) and was awarded shares and options under RBH’s parent company, Reckitt Benckiser Group plc’s (“RBG”) long-term incentive plan (“LTIP”). The vesting of these shares and options were dependent on RBG’s performance between 1 January 2017 and 31 December 2019.

The employee retired on 30 June 2019 and for the purposes of the LTIP was classed as a good leaver, which meant he would be entitled to a pro-rated amount under the LTIP. Unfortunately for the employee, the performance of RBG in the relevant period was such that no awards under the LTIP would vest.

In order to retain existing senior employees of the group, RBG changed the rules of the LTIP – the change being that for those employed on 18 September 2019, 50% of the award would vest regardless of RBG’s performance. As the employee had retired on 30 June 2019 he did not benefit from this change and so didn’t receive an award under the LTIP. It was estimated that under the changed scheme his award would have been around £1.2m.

The employee brought an indirect age discrimination claim. The employment tribunal (“ET”) found that the claim failed as the PCP – as identified by the employee – of being employed on 18 September 2019 was a proportionate means of achieving a legitimate aim, namely retaining senior staff. The ET also found that RBG was acting as an agent for RBH – the employer – and so both companies could potentially have been liable.

The EAT agreed with the ET’s outcome but for entirely different reasons – in fact the EAT determined that the ET was wrong on the justification point. The EAT accepted that the LTIP change was a means of retaining staff, which was a legitimate aim, however the PCP that caused the disadvantage – namely the date on which an employee had to have been employed in order to benefit from the changes – was not a means for achieving that aim as those excluded had already left employment and so could not be retained. Therefore the legitimate aim of retaining staff was not capable of justifying the PCP.

The main point of the EAT decision was that it was the parent company, RBG, who had made the change to the LTIP and there was no evidence that RBG were acting as RBH’s agent in making those changes.

Therefore the employer, RBH, could not be liable, even if the other points had succeeded. The law around agency is complex and there’s not one clear indicator of where agency applies, rather you have to look at the facts as a whole. One essential feature of agency, however, is that the principal; in this case RBH, authorises the act by the agent, which was not the case here. Just because the companies were in the same group and RBG made decisions for the benefit of RBH was not enough to establish agency.

The EAT also indicated that, due to the “unpalatable” outcome here it may be that parliament needs to look at the lacuna in the law that this case highlights – albeit the EAT did suggest that the claim could have been presented in an alternative way which might have yielded a different result but did not elaborate on what this alterative way could be.

Key takeaways:

1. Where any PCP is used, ensure that the PCP itself is actually a proportionate means of achieving a legitimate aim, or put another way, the PCP itself must be justified, not simply the overall change(s) being made. In this case the PCP was not in fact a means, let alone a proportionate means, of achieving the legitimate aim of retaining staff, it was simply an arbitrary date at which an employee had to be employed to benefit from the LTIP changes.
2. It cannot be assumed that a parent company or other group company is acting as agent for the employing company, as in many cases it may well not be. Therefore, it could be that discriminatory decisions made by a parent company will not fix the actual employer company with legal responsibility.